Fletcher v Jones

Judgment - ex tempore

1. By Notice of Motion filed 1 October 2015 the Plaintiff, Webster Consolidated (Holdings) Pty Limited ("Company") relevantly seeks an order under s 5 of the Jurisdiction of Courts (Cross-Vesting) Act 1987 (Cth) and/or s 1337H of the Corporations Act 2001 (Cth) that these proceedings, which are an application to set aside a creditor's statutory demand ("Demand") dated 17 July 2015 issued by Mr Anthony Webster to the Company, be transferred to the Family Court of Australia for determination. The Company also seeks alternative orders, which it will not be necessary to address unless the application for transfer to the Family Court of Australia is unsuccessful. The parties devoted the substantial part of their efforts in submissions to the application for transfer.
2. By way of background, the Company has two shareholders, Ms Belinda York and Mr Anthony Webster. Ms York and Mr Webster are parties to proceedings in the Family Court of Australia. In deference to the fact that such proceedings are typically subject to confidentiality constraints, to which I will refer below, I will refer only to those proceedings in the most general way. There are issues in those proceedings as to a range of assets, which include a number of companies in which Ms York and Mr Webster have interests. The Family Court proceedings have involved a joint instruction given by the parties to an expert to inquire into various matters relating to some 16 companies and entities associated with the parties, including the Company. The matters to be inquired into appear, in part, to be directed to a valuation of these entities, but go more widely to the treatment of loans as between the relevant parties, including when loans were created, what was the ostensible purpose of such loans, the implications of the loans on the relevant entity or individual, whether the loans had been repaid by or to the husband or the wife or remain outstanding, or in any other relevant information to which the expert may wish to refer. It is plain that one matter which will be addressed in that inquiry is the state of loans by, relevantly, Mr Webster, who served the Demand, and the Company.
3. With that background, the Demand claimed an amount $337,713.29 which was described as the amount due and payable being monies provided as directors' loans by Mr Webster to the Company from the period up to and including July 2015. To that extent, the Demand anticipated one possible answer to the question which the expert in the Family Court proceedings has been directed to investigate, whether there was a loan due by the Company to Mr Webster, and anticipated that the answer would be that there was such a loan and it was due and payable by the Company. The Demand was in turn supported by an affidavit sworn by Mr Webster dated 17 July 2015 which asserted the existence of such a loan and recorded that he had made demands for repayment of the loan but had received no payment of it.
4. By Originating Process filed 10 August 2015, the Company seeks an order under s 459H of the Corporations Act that the Demand be set aside, which anticipates that either a genuine dispute will be deployed, or alternatively that an offsetting claim will asserted, and also refers to s 459J of the Corporations Act which deals with, inter alia, the setting aside of a creditor's statutory demand for some other reason. The question in issue before me is not, of course, whether there is a genuine dispute as to the debt specified in the Demand or whether there is some other reason to set it aside. The issue before me is a narrower one, whether the proceedings should be transferred to the Family Court of Australia.
5. The parties devoted primary attention in submissions to authorities in respect of s 5 of the Jurisdiction of Courts (Cross-Vesting) Act. It seems to me that it is likely that this application falls to be determined under s 1337H of the Corporations Act, so far as it is an application brought in the corporations jurisdiction of the Court, arising under Pt 5.4 of the Corporations Act, and the Court is exercising federal jurisdiction in that respect, and s 1337H of the Corporations Act provides a specific regime for the transfer of such proceedings including, inter alia, to the Family Court of Australia. However, little turns upon that, because the principles which will be applicable to a transfer of proceedings under s 5 of the Jurisdiction of Courts (Cross-Vesting) Act and under s 1337H of the Corporations Act are substantially the same.
6. Mr White, who appears for Mr Webster, draws attention to the observation of Brereton J, in respect of s 5 of the Jurisdiction of Courts (Cross-Vesting) Act, in Valceski v Valceski [2007] NSWSC 440; (2007) 70 NSWLR 36 at [69] that: "The question is simply whether, assuming the jurisdiction of the transferor court has been regularly invoked, it is in the interests of justice that the proceedings be heard and determined in the transferee court, there being a statutory obligation to transfer the proceedings to that court whenever it appears to be in the interests of justice to do so - for which purpose it is both necessary and sufficient that the transferee court be the 'more appropriate forum'".
7. The power to transfer proceedings under s 1337H of the Corporations Act is discretionary rather than mandatory. That section applies to a proceeding which is a proceeding with respect to a civil matter arising under the Corporations legislation, and an application to set aside a creditor's statutory demand plainly falls within that description. Section 1337H(2) provides that a matter may be transferred if it appears to the transferor court that, having regard to the interests of justice, it is more appropriate for the relevant proceeding to be determined by another court that has jurisdiction in the matters for determination in the relevant proceeding. It is common ground between the parties that the Family Court of Australia is a Court for the purposes of s 58AA of the Corporations Act and therefore has jurisdiction in the matter, as does this Court. Section 1337L of the Corporations Act in turn specifies further matters for the Court to consider in deciding whether to transfer proceedings under s 1337H, and requires a court to have regard to, relevantly, the other courts that have jurisdiction to deal with the proceeding or application.
8. The authorities have considered the matters which should be considered in determining a transfer of proceedings under s 1337H. In this case, no question arises, as would often be the case, as to transfer of proceedings to another state, since it is likely that proceedings would be heard in New South Wales in any event. However, relevant matters include which court is the most natural forum, which will often but not always involve a geographical test, and also convenience to the court system. Matters which will support a transfer include a substantial overlap between issues arising in proceedings in a different court, that it will be more efficient or less time consuming or less costly for the proceedings or issues to be resolved in another court, and that the risks of inconsistent findings will be removed if proceedings are heard or determined in another court: Roff v Aqua Distributors Pty Ltd (1996) 22 ACSR 248 ("Roff v Aqua Distributors"); Zhu v Tech Universal (HK-Macau) Development Pty Ltd [2005] FCA 256; (2005) 53 ACSR 704 ("Tech Universal"). In the latter decision, Giles J referred to observations of Merkel J in Roff v Aqua Distributors above in identifying relevant matters including overlap of issues in the relevant proceedings; the risk of inconsistent findings; and the width of the powers of the Family Court of Australia under the Family Law Act 1975 (Cth) in respect of property settlements, which equip it to resolve the ultimate dispute between the parties as to a particular company. Both of those proceedings involved the transfer of proceedings, in those circumstances from the Federal Court of Australia to the Family Court of Australia, although each is relevant here for its identification of the relevant factors, rather than for the result in the particular case.
9. The courts have recognised, in respect of the transfer of winding up applications, which was a matter considered in Tech Universal above, that it is desirable that all matters of controversy be determined in the one proceeding and a multiplicity of proceedings be avoided, but also recognised that it is less likely that winding up proceedings will be transferred if third party creditors' or shareholders' rights are involved. It is not clear on the evidence before me, whether the Company has substantial third party creditors, but it seems that its shareholding is closely held, between the parties to the Family Court proceedings.
10. Both parties rely on affidavit evidence. Affidavit evidence of Ms York addresses the issues arising in the Family Court proceedings, and identifies a range of evidence in the Family Court proceedings on which the Company would seek to rely in its application to set aside the Demand. In a further affidavit dated 18 December 2015, Ms York refers to steps which are currently being taken in the Family Court proceedings, including the instructions for the expert's report to which I referred above, and also responds to matters raised by Mr Webster in this application, including allegations made in several parts of Mr Webster's affidavit which, properly, were not read in this application. Mr Webster in turn relies on his affidavit in support of the Demand, a further affidavit dated 26 November 2015 and his solicitor's affidavit dated 24 November 2015, which is largely directed to show that the substantive Family Court proceedings will not go to hearing for some time, likely in 2017.
11. The parties made comprehensive submissions as to the relevant issues. I will summarise the issues relatively briefly, without any disrespect to the subtlety of those submissions because it seems to me that the matter can ultimately be determined in relative narrow scope. Mr Leong, who appears for the Company, identifies a number of issues which he submits will arise in the determination of the application to set aside the Demand. He submits that the Company is part of a "matrimonial cause", so far as it is within the Family Court's jurisdiction, and submits that the Family Court of Australia has exclusive jurisdiction over matrimonial causes. It has not, however, generally been suggested that the Court's winding up jurisdiction is excluded by the fact than an otherwise insolvent company has an association with a person who is a party to Family Court proceedings. It is, however, not necessary to determine that matter in the present case.
12. Mr Leong draws attention to issues as to the scope of s 121 of the Family Law Act, which imposes confidentiality obligations in respect of evidence in proceedings in the Family Court of Australia, and in particular, refers to authority that it may be necessary to obtain leave from the Family Court of Australia in order to lead evidence of issues arising in that Court in this Court: Fletcher v Jones [2015] FamCA 193. It is not necessary for me to reach a final view as to matter, because it is sufficient to recognise, for present purposes, that it is likely that there would be at least some complexities in respect of that matter if the application to set aside the Demand continued in this Court. It may be that this Court would need to adjourn these proceedings to allow an application for leave to rely on that evidence to be brought in the Family Court of Australia, rather than expose the Company to the risk that, whatever view this Court might take as to s 121 of the Family Law Act, in circumstances that this is an interlocutory application, the Family Court of Australia may take a different one.
13. Mr Leong emphasizes the significance of that matter, where it is suggested that the Company may seek to rely on up to 12 affidavits read in the Family Court of Australia in support of its application to set aside the Demand. It may well be that the reading of that number of affidavits, in an application to set aside a creditor's statutory demand, might verge on the excessive, where such an application does not involve a determination of the substance of the issues in dispute. However, I proceed on the basis that it is at least the Company's intention to rely on some of the evidence which was read in the Family Court proceedings and, in any event, it is almost inevitable that the Company would need to lead evidence as to the status of the Family Court proceedings, which is likely within the scope of s 121 of the Family Law Act, in order to seek to establish that there is a genuine dispute by reason of the matters that are at issue in the Family Court proceedings. Mr Leong relies on the fact that the Family Court of Australia could more readily deal with an issue of leave to rely on the evidence led in the proceedings before it, and also relies on the overlap between the issue as to whether there is a genuine dispute as to the debt raised in this application, and the issues as to the status of the debt raised in the Family Court proceedings.
14. In the course of the oral submissions, in response to a question that I raised, Mr Leong also emphasised a matter to which he had also pointed in his reply submissions, namely that there is a potential risk of inconsistency between findings of the Family Court of Australia in the proceedings before it and any finding that this Court might reach in the application to set aside the Demand. It seems to me that that risk of inconsistency is very real and can simply be illustrated. Once it is put by the Company that there is a genuine dispute as to the debt specified in the Demand, then the only way in which Mr Webster can avoid the Demand being set aside is to establish that there is no such dispute. In order to establish that there is no such dispute, Mr Webster must show that, any evidence led by the Company, derived from that led in the Family Court proceedings, does not establish a genuine dispute as to the debt claimed in the Demand. For example, Mr Webster must contend that, to the extent that there are any issues to be investigated by the accountant appointed in the Family Court proceedings, they do not raise any question as to whether the loan by Mr Webster to the Company exists, was made for a proper purpose, is legally enforceable, is presently due, or is otherwise open to dispute.
15. The difficulty is, of course that, if this Court determines there is no genuine dispute as to any of those matters, in order not to set aside the Demand, then it must necessarily determine the issue which is already raised by the reference to the expert in the Family Court proceedings. Mr White submits that that is not a matter of difficulty, because this Court's determination will bind Ms York and Mr Webster in the Family Court proceedings. There seems to me to be a number of difficulties with that proposition. The first is that this Court's determination will not necessarily bind anyone, as to the substantive position in respect of the debt, because all this Court will determine is whether there is a genuine dispute as to the debt, not the merits of that dispute. The second difficulty is that it will not bind Ms York, because Ms York is not a party to these proceedings, but only to the Family Court proceedings. The third difficulty is that, so far as the Court is required to canvass evidence that would be led in the Family Court proceedings, there is a plain risk of inconsistency between any findings this Court may make as to that evidence, and any findings that the Family Court judge may make in the Family Court proceedings as to that evidence. It seems to me that the risk of inconsistency, which is a risk that has been identified in the authorities to which I refer as a matter tending towards transfer of the proceedings, is substantial in this case.
16. Mr White in turn emphasises this Court's ability to determine a winding up application promptly, as the Court's procedures contemplate. It has often been recognised that a court should not, in applications for transfer of proceedings, engage in an invidious exercise of assessing its and another court's respective merits. There is no reason to think, as a matter of principle, that the Family Court of Australia could not separate out this application from the substantive proceedings, if it considered it in the interests of justice to do so, and hear it promptly. If the constraints upon the Family Court's resources, and the volume of work it must deal with, is such that there will be a delay in determining the matter, then that delay would in any event arise if this Court heard the application, because of the likely need for a prior application to be brought by the Company in the Family Court of Australia for leave to use material in this Court.
17. It is of course, possible, as Mr White emphasises, that the Family Court of Australia might defer the determination of these proceedings to be joined up with the wider proceedings. The implication of Mr White's submission was that that was a disadvantage for Mr Webster. It is by no means apparent to me, although it is not necessary to decide, that that is the case. On one view, the ability of the Family Court of Australia to defer a determination of whether to set aside the Demand may be an advantage to Mr Webster, because it at least preserves to him the possibility that any genuine dispute which may now exist, by reason of the Family Court proceedings, would not exist once the Court had determined the position in respect of his claimed loan to the Company, if that determination were in his favour. In any event, it seems to me that the Family Court of Australia would only defer the determination of these proceedings to be heard with the main proceedings if it formed the view that it was in the interests of justice to take that course. There is no reason to see that course as inappropriate, if it is taken for that reason.
18. Mr White also submits that there is no duplication between the proceedings. I do not accept that submission. It seems to me that, once the Company determines, as it has plainly determined, that it will rely on material led in the Family Court proceedings in order to advance its application to set aside the Demand, then there is as a matter of fact a duplication between the two proceedings, notwithstanding that Mr Webster might wish to conduct the proceedings in a narrower fashion.
19. For all these reasons, it seems to me clear that it is in the interests of justice to transfer this application to the Family Court of Australia pursuant to s 1337H of the Corporations Act. I am satisfied that, in the relevant circumstances, that course is likely to facilitate the determination of this matter in way that will limit duplication and avoid the risk of inconsistency, which would otherwise arise from a determination of the application in this Court, and will more readily allow issues of confidentiality which will arise in respect of matters connected with the Family Court proceedings to be addressed. Accordingly, I will make an order for the transfer of the proceedings to the Family Court of Australia.
20. In this matter, I make the following orders:
21. An order pursuant to s 1337H of the Corporations Act 2001 (Cth) that proceeding 2015/233459, and the matters arising for determination in it, be transferred to the Family Court of Australia for determination.
22. An order that the costs of both parties in this Court, other than the costs of this notice of motion to transfer the proceedings, be reserved to the Family Court of Australia.
23. Direct the applicant to serve, and send to the Associate to Black J, any submissions in respect of any application for indemnity costs by 4pm, 18 March 2016, limited to no more than three pages in one and half spacing.
24. Direct the respondent to serve and send to the Associate to Black J, any submissions in reply in respect of whether or not costs should be ordered on an indemnity basis by 4pm 24 March 2016, limited to no more than three pages in one and half spacing.
25. Direct the applicant to serve, and send to the Associate to Black J, any submissions in reply in respect of the question of costs on an indemnity basis by 4pm, 31 March 2016, limited to three pages in one and half spacing.
26. Reserve the question of costs of the notice of motion to a judgment to be delivered in chambers.